Good day, ladies and gentlemen, and welcome to Tronox Limited First Quarter 2018 Earnings Conference Call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session, and instructions will be given at that time [Operator Instructions]. And as a reminder, this conference is being recorded. I'd now like to turn the conference over to Brennen Arndt, Senior Vice President, Investor Relations. Sir?

Thank you, James, and welcome, everyone, to Tronox Limited's First Quarter 2018 Conference Call. On our call today are Jeff Quinn, President and Chief Executive Officer; John Romano, Chief Commercial Officer; Jean-François Turgeon, Chief Operating Officer; and Tim Carlson, Chief Financial Officer. We'll be using slides as we move through today's call. Those of you listening by Internet broadcast through our website should already have them. For those listening by telephone, if you haven't already done so, you can access them on our Web site at tronox.com. A reminder that our discussion today will include certain statements that are forward looking and subject to various risks and uncertainties including, but not limited to, the specific factors summarized in our SEC filings, including those under the heading, rather, entitled Risk Factors in our annual report on Form 10-K for the year ended December 31, 2017. This information represents our best judgment based on today's information. However, actual results may vary based on these risks and uncertainties. The company undertakes no obligation to update or revise any forward-looking statements. During the conference call, we will refer to certain non-U.S. GAAP financial terms that we use in the management of our business. These include EBITDA, adjusted EBITDA, free cash flow and adjusted earnings per diluted share. Reconciliations to their nearest U.S. GAAP terms are provided both in our earnings release and in the appendix of the slide deck. Moving to Slide 3. It's now my pleasure to turn the call over to Jeff Quinn. Jeff?

Thanks, Brennen, and good morning to all of you. I'm going to start this morning by making a few comments about the general status of things, and then I'll turn it over to the team. JF and John and Tim will talk about our strong first quarter. Up again with a few remarks on the significant progress we made over the last several weeks towards closing the Cristal acquisition. First, as a result of our discussions with the European Commission, through the formal hearing process, and the follow-on State of Play meetings, we've narrowed the issues and obtaining a conditional clearance from the commission is now only dependent upon finalizing an agreement on the proposed remedy to address the remaining objection. Those discussions are ongoing on a realtime basis. We're also negotiating with multiple potential counterparties regarding execution of the proposed remedy. Understandably, we received many questions about the overall timing in the EU. Under the current schedule, we're aiming to agree to all the details on a remedy with the commissioned staff and by May 16, at which time, that remedy will be formally submitted. Assuming we're successful, the staff would then market test the remedy, and if the remedy checks out, the remedy would then be presented to the full commission for its approval. Under the EU rules, the deadline for approval by the full commission is July 12. Since the submittal of the remedy to staff is confidential, we will not be able to provide any additional information on our progress until the remedy is approved by the full commission in a number of weeks. In the U.S., we filed a motion with the FTC on Monday, seeking to stay the administrative proceedings scheduled to start on May 18th. The motion is publicly available, and we've posted…

Thanks, Jeff. Moving to Slide 4. I'll start with a look at revenue growth in the first quarter compared to the year-ago first quarter. TiO2 segment revenue of $442 million increased 17%, driven primarily by higher selling prices for pigment, zircon and pig iron. Pigment sales of $333 million increased 22% as average selling prices increased 25%, or 20% on a local currency basis, while sales volumes were 2% lower due to inventory availability related to the timing of plant maintenance. Pigment sales prices were higher in all regions. Titanium feedstock and co-product sales of $97 million increased 5% from the year-ago quarter. Favorable market conditions continue in titanium feedstock and co-products as selling prices increased 34%. Sales volumes were 22% lower, reflecting the timing of shipments for zircon and chloride-process titanium slag. Zircon sales of $61 million increased 22%, driven by 52% higher selling prices, which more than offset the 20% lower sales volumes, as shipments originally scheduled in the first quarter occurred in the prior quarter. Pig iron sales of $19 million increased 73% as selling prices increased 18% and sales volumes increased 41%. Feedstock and other product sales of $17 million were 45% lower, driven by the timing of shipments. There were no sales of chloride-process titanium slag in the first quarter compared to $12 million of sales in the year-ago quarter. Moving to Slide 5, for the sequential comparison versus last year's fourth quarter. TiO2 segment revenue was 5% lower despite higher selling prices for pigment and across all major product lines in feedstock and co-products. The revenue decline was largely driven by lower sales volume of zircon, pig iron and chloride-process titanium slag, again, due to the timing of shipments. In our fourth quarter call, we spoke about a high level of shipments for feedstock…

Thank you, JF. Moving to Slide 7. On March 31, 2018, gross consolidated debt, net of debt issuance costs was $3.15 billion and debt net of cash and cash equivalents was $1.42 billion, including $653 million of restricted cash for the Cristal transaction. Liquidity was $2.03 billion, comprised of cash and cash equivalents of $1.73 billion, including the restricted cash for the Cristal acquisition and $305 million available under revolving credit agreements. Our blended cost of debt was 5.82% in the first quarter and on March 31, 2018, 33% of our total indebtedness was set at a fixed rate. On April 6, we completed a private placement offering of 6.5% senior notes, due in 2026 for an aggregate principal amount of $615 million. We used the net proceeds to fund the redemption of $584 million aggregate principal of 7.5% senior notes that were due in 2022. We expect cash interest expense, net of interest income, for the full year 2018 to be approximately $165 million, down from $170 million that we forecasted in the last quarter's call. Cash used in corporate operations was $83 million in the first quarter, which included a semi-annual bond interest payment of $22 million. As a result of our debt refinancing, these semi-annual bond interest payments will now be made in the second and fourth quarters each year, rather than the first and third quarter. Capital expenditures were $28 million in the quarter and depreciation, depletion and amortization expense was $48 million. We're reaffirming our expectations for capital spending, DD&A and cash tax in 2018 with capital spending of $120 million to $130 million, DD&A of $180 million to $200 million, cash tax of approximately $20 million. Each of these estimates is on a Tronox stand-alone basis. With that, I thank you, and I'll now turn the call over to Jeff for closing comments. Jeff?

Yes. Thanks, Tim. And now, turning to Slide 8, I'd like to share some perspectives on 2018 and summarize the key points we'd like you to take away from this morning's call. First, we've made significant progress over the last several weeks towards closing the Cristal acquisition. As a result of our discussions with the European Commission through the formal hearing process and the follow-on State of Play meetings, we've narrowed the issues and obtaining a conditional clearance from the EU is now only dependent upon finalizing an agreement on the proposed remedy to address their remaining objection. We're also negotiating with multiple potential counterparties regarding execution of the contemplated remedial transaction. Under the current schedule, we're aiming to agree on all the details regarding the remedy by May 16 with the commissioned staff and then formally submit the remedy. Assuming we're successful, the staff would then market test the remedy, and if the remedy checks out, the remedy would then be presented to the full commission for its approval. Under the EU rules, the deadline for approval by the full commission is July 12. Since the submission of the remedy to the staff is confidential, we will not be able to provide any additional information on our progress until the remedy is approved by the full commission. In the U.S., we filed a motion with the FTC this week to seek a stay of the administrative proceeding that's scheduled to begin on May 18. If granted, the stay would allow us to engage in direct discussions with the new commissioners, something not permitted, while the administrative process is pending. If those discussions don't result in a resolution, we will ask the FTC commissioners in the alternative to consider pursuing the FTC's case through the typical federal court process, which…

[Operator Instructions] Our first question comes from John McNulty with BMO Capital Markets. Your line is now open.

Couple, I guess, points. I guess, when you're thinking about the optionality around the slagger, I guess, how should we be thinking about the synergy potential tied to that when you can bring that kind of to your fuller platform?

Well, obviously, the most important thing there is that the slagger will allow us to continue to operate our mineral sands operations at full capacity. It will be a significant source of demand for the mineral sands as well as producing significant volumes of high-value feedstocks. And JF... Jean-François Turgeon: Yes. I think that our pigment plant generates less waste when we use a high-grade feedstock, and we obtain co-product, the pig iron that generate, as we upgrade the ilmenite into slag is the source of revenue as well for the business.

But I guess, can you quantify what the benefit would be, say, on a normalized basis or in this current environment, just to give us a little bit of color?

No, John. But I would say that in the press release and in the script, we talked about the nameplate capacity of Jazan, both from feedstock as well as the pig iron standpoint. It's a world-class smelter that if we can get to run at or near full utilization, it will be a significantly low-cost supplier to our feedstock operations, a competitive advantage in that regard. So that, plus the merchant sales of pig iron, it's a very economically attractive move for us.

And then I guess, on the EC remedy, I know you can't get into too much in terms of details, but I guess, can you quantify what you think the impact would be in terms of your synergy opportunities from the transaction? It sounds like it would be relatively minimal, but I guess, if you can give us some color on that, that would be helpful.

Yes. I believe any impact on the synergies for the remedy would be very minimal, if any at all.

And then maybe just one last question. We've gotten a lot of feedback from your peers on the pigment side and on the ore side in terms of how things are tightening up. And I guess, as you look into 2018 and maybe even 2019, I guess, how do you think about the 2 relative platforms that you've got and how to think about the tightening overall? I mean, do you see pigments tightening up more than ores, ores kind of catching up to the pigments over the next 12 to 18 months? I guess, how should we be thinking about that balance and the benefit that it gives you being fully integrated like that?

Yes. This is John Romano. So on the feedstock and co-products, as I mentioned, kind of in the script, we're seeing more demand for feedstock and co-products than we currently have inventory to support those opportunities. So we're going to continue to see, I would say, strong demand growth in that area. For us, that's a good thing because the high-grade feedstock, we're seeing prices of that product moving up, and we're continuing to internalize more of the natural rutile that we have to feed our own plants. As far as the TiO2 market goes, we're continuing to see steady demand in all regions. We don't typically provide a forward look on pricing, but I would say, moving into Q2 and Q3, we're going to continue to see moderate appreciation on price.

Our next question comes from Frank Mitsch with Wells Fargo.

Jeff, I have a question on timing. I don't have a great sense as to how long it takes FTC commissioners to get up to speed, particularly with your transaction. So I was wondering, because you said that you're going to engage in direct dialogue, and then at that point, if it's not satisfactory, you'll ask them to go into the typical federal court process. What would that time line look like for you to get to the point where you think you might have to ask to get into the federal court process?

Well, I think -- as you know, Frank, the administrative hearing is scheduled to begin on May 18. If the FTC were to not grant our stay, that hearing would continue forward and through the trial process and the period of time after trial that the ALJ has to render a decision, et cetera, et cetera. That would not provide a final, a decision until much later in the year. And probably, not in a time frame that is relevant to the transaction. If our discussions with the FTC were not allowed or don't result in a resolution, but we were able to persuade the FTC to go the typical federal court route, that federal court process would take somewhere around 4 to 5 months from the point it was filed.

So if you don't get a resolution, and so I guess, a follow-up. I mean, are your discussions with the FTC, here we stand on May 10, I guess it is, is that something a June event, is that a July event that you would get to that point where you say, okay let's go to the federal court process, or is that the sort of time frame we should be thinking about, a month or two months' type of time frame?

Well, I think, there is no specific time line for the FTC to act on our motion for a stay, once that issue or that motion is sort of certified to the commissioners by the ALJ. I think, certainly, the European Union time frame is relevant there because of the early July deadline for a final decision in the EU assuming that as we believe it will and hope it will, things continue to go well there. If we receive the conditional approval at that point in early July, we would be able to close the transaction if the FTC did not move to the federal court venue to try to obtain a temporary restraining order and the PI. So that early July time frame, we believe is very relevant. It would be our hope that we're able to engage in meaningful discussions with the FTC well in advance of that time frame, so that once the EU situation is resolved, we would be good to go.

All right. That's helpful. And I mean, just a housekeeping question. You discussed that the South African rand appreciated 12% relative to the dollar so that had a negative impact in Q1. Although based on where trends are now, half of that negative impact is going to be realized in Q2. What was the order of magnitude of negative impact, roughly that the rand was to your Q1 results?

The rand itself in Q1 was about $12 million to $13 million on costs and another $6 million on translation on receivables.

So all together close to $20 million negative impact?

About $18 million in the quarter. Correct. And we should see half of that come back in Q2 given current rates. And the Aussie dollar has also changed in our favor as well. We should see $3 million to $4 million from the Aussie dollar come back in Q2 as well. Sequential Q1 to Q2.

Our next question comes from Hassan Ahmed with Alembic Global.

A question -- obviously, cognizant of the fact that you can't sort of disclose too much with regards to the European Commission discussions and the like. But broad stroke, I was just trying to get a sense in terms of this remedy, I mean, are we talking sort of asset disposal? Are we talking sort of walking away from certain customers, clients? Are we talking sort of providing some technology to competitors? I mean, broad brush, how should we be thinking about it?

The scope of the remedy is something that we believe is will not have a significant impact on the value creation opportunities. It's something that would be designed to maintain the competitive balance. The commission believes it's so important in the relevant markets that have been identified as being problematic and it would not have a significant impact on our ability to realize the synergies from the transaction. Beyond that, I'm very reluctant to say more because I just don't want to get out ahead of the commission at all and because of the confidentiality requirements. But it's something that obviously we're very pleased with and optimistic that we can conclude in the next number of days.

Now moving to the pricing side, specifically, on the pigment side of things. Some of the coatings companies basically reported earnings. They had some volume weakness. They were citing, obviously, weather issues because of that volume weakness. But as you take a look at their basket of raw materials, be it epoxies, be it propylene, be it TiO2, I mean, there's been significant inflation over there. But they're talking about, most of them are talking about increasing their pricing in the back half of the year to offset these sort of raw material price hikes. So I'm just trying to get a sense that with TiO2 pricing where it is right now, obviously, significantly below levels where it was at in the past week, what sort of discussions are you guys having? Are you in the camp of sort of talking about longer-term contracts? How amenable are the coatings companies to sort of giving you the pricing that you guys are requesting, keeping in mind the relatively snug supply-demand balances and the like?

Yes. This is John Romano. So with regards to longer-term pricing towards trying to take the volatility out of the market, as Jeff referenced as did I, we're in various levels of discussion with a number of customers, some of which we've already concluded. We believe that's something that's healthy for our business, and it's also healthy for our customers. So that's really where we're focused and that's, I would say, not just in North America, and not just in coatings, we're looking at that globally. And I would say, there's varying levels of progress that we're making depending upon the region that we're working in.

And one final quick one, if I may. You mentioned the Exxaro stake sale, just if you could remind me, are there any stake sale restrictions on Exxaro before the deal closes -- before the Cristal deal closes?

No. I mean, not per se, but I think, obviously, Exxaro would have to sell at a period of time during a window or when there's no clarity on everything in the deal. So no, I don't think there are restrictions per se. I certainly would expect that just as a practical economic matter, Exxaro would wait until there is clarity on the deal before considering to move forward. But, obviously, that's their decision and we don't totally control that timing.

Our next question comes from Duffy Fischer with Barclays.

It's actually Mike Leithead on for Duffy this morning. I think you talked about your TiO2 plants running at full capacity in the slides. So if the market's expected to grow over, say, the next 2, 3 years, are you dependent on the Cristal plant to fulfill incremental demand? Or is there debottlenecking capability at your existing plant base if we don't have the Cristal assets? Jean-François Turgeon: Mike, it's JF. Look, there is always some debottlenecking that we can do in our plant. Our operational excellence program has allow us to increase the uptime of those facility, and we could probably grow at a slow place. But there's, obviously, a huge upside on achieving the control of the Cristal asset and part of the synergy is being able to grow with our customer by improving our capability to supply in that tight market by liberating the hidden factory of the Cristal asset. That's how we see it.

Yes. And Mike, also note, it's not just the Cristal assets, but with the cash flow and the financial wherewithal that the combined company will have, that will even allow us to consider projects at the current legacy Tronox operations to be able to look for ways of debottlenecking and lowering costs and adding capacity on the way. So it really is, we believe, a net-net very exponential increase in our ability to reduce cost and become more competitive to the benefit of our customers.

And just a clarifying question. I think I heard you mention some shipments that were expected to land in 4Q are now expected to be in Q2. Are those shipments that are pulled forward from 4Q '18 or shipments that are pushed back from 4Q '17?

No. I think actually John misspoke. I think it's actually shipments that were being pushed from first Q to second Q. I think John maybe misspoke during the prepared remarks.

We had a CP slag shipment that was supposed to go in Q1, as John mentioned it went in Q2.

No, so just to be clear, so there was some that was pulled forward from 1Q into 4Q, but there was also maybe some shipments that should have occurred in 1Q that are going to show up in 2Q. Is that fair?

Exactly. We were suffering a little bit from both directions, right? So it makes the first quarter look a little bit artificially weak on volumes when we had some pre-shipments and some things delayed. So...

And specifically, one of those was a chloride slag shipment that has now shipped in Q2.

Our next question comes from Matthew DeYoe with Vertical Research. Your line is now open.

So in the past you kind of talked about parallel paths for U.S. FTC engagement, and I know where you stand or we now know where you stand with the FTC. But have you embarked at all on kind of discussions with potential acquirers on remedy packages or have indications of interest? Or does that all come once discussions start with the FTC more formally?

Yes, as we've said, we are embarked on a parallel path process, and we have continued to advance both parallel paths there in that regard. So those processes are started and continue as we speak.

Okay. And then if I might dig in a little bit more on the mineral sands side of things. Can you talk about trends in rutile slag and ilmenite prices, both year-over-year and sequentially kind of how much have they continued to appreciate?

We can't get too specific about how much, but on all of those, we're seeing price move up. Again, at this particular stage, we're not selling as much high-grade feedstock as we would have historically because we're internalizing a lot of that. But what we are selling, we're seeing prices move as well as in zircon, natural rutile and pig iron.

Then on the internalization of the higher quality side of things. I mean, you mentioned you're starting to increasingly benefit from the vertical integration. Can you provide a little bit more color around the quantification of that? Jean-François Turgeon: Well, maybe the point we can say is that the value of the vertical integration really shows when you see the feedstock side of the TiO2 business moving up in price. Because in our case, we continue to deploy our operational excellence program, and we're actually lowering the cost of making that feedstock. And it's the margin that we absorb both on the mineral sand side and on the pigment. So that's really where you see the strength and that's really the differentiator of Tronox versus its competitor because being fully integrated, I mean, we see no impact as the feedstock price is moving up.

And I would add that, we can't give you the numbers, obviously, per se. It's a competitive advantage for us. But I think that, that advantage is reflected in the segments adjusted EBITDA margin improvement over the last year or so. I mean, even in this quarter, despite the absence of high-margin zircon and pig iron and some of the other shipments, the segment delivered a 31% EBITDA margin. So I think that's a pretty clear reflection of the mineral sands assets as well as the pigment assets running at full utilization absorbing that high fixed cost very well.

Our next question comes from John Roberts with UBS.

I think you said local currency pricing for TiO2 was up 2% sequentially first quarter versus fourth quarter. And that would be a mix of regions, and large versus small customers and specialty versus basic. Was pricing up sequentially in basically all regions and customer types? Or could you give us a sense maybe of any deviations from that average 2%?

Yes. We saw price appreciation across all regions with the exception of in Latin America, it was flat. We had no price deterioration there. But we didn't implement a price increase in Q1. We had one that was announced in 4Q too, so we were going through the process of implementing that increase during the latter part of Q1. So again, it's moderate growth, but we're continuing to see price appreciation.

Our next question comes from Brian Lalli with Barclays.

I guess, first on the balance sheet, Tim. I know you spoke about this a bit on the last call. But could you just recap how you'd handle the balance sheet under, I guess, the 2 scenarios. I guess, first, if the deal were to close, obviously, you have a lot of cash. Could you just sort of walk through the anticipated repayments of that? And then I guess, secondly, if you do close the deal, but there are some remedies and potential things you have to do from a regulatory standpoint. Anything that would maybe come in from an asset sale standpoint or proceeds. I guess, how would you walk through that from a repayment of loans or just resizing the balance sheet? That would be helpful color. I know you're still few months away from figuring all this out, but again, that would be helpful color.

Thanks, Brian, for the questions. If we did not close, but obviously, we believe we will, the blocked borrower accounts would be liquidated and that would be paid off as well as $800 million from the Alkali proceeds from the term loan would have to be paid off. So with those two payments, our debt ratio would be quite good still. As it relates to any potential remedies and what the impact would be, as of now, we've looked at a number of different options. We would repay some debt, but there would also be opportunities for other capital allocation as it relates to dividend, maybe some share repurchase and potentially something to bolt on in China or from a mineral sand standpoint.

Just a quick follow-up on that. I know you talked about two to three times, can I just, I guess, confirm, is that something you think about ultimately on a growth basis, again, as you kind of get back to a more reasonable balance sheet through a cycle?

Yes, I see a growth in that actually being very close to one another as a result of our cash management approach, and that target is still our internal target.

And then my last one. And again, maybe I've missed this and I apologize. But could you just, I guess, give us a sense for what your guidance was before? Again I apologize if I've missed it, but I guess, I wasn't sure what your number was previously. I think I'd seen a number that was $1 billion, I thought that was inclusive of some synergies. So again just to sort of make sure I understand how you guys have thought about it...

Yes, the previous guidance was $950 million to $1 billion without synergies, and now we're taking that $1 billion to $1.1 billion without synergies. And we've been consistent on expecting $100 million of synergies in year 1.

And then the only change that we've talked about, Brian, as it relates to free cash coming from that. There's about $75 million associated with the slagger this year. $125 million total over an 18-month period. But still $400 million to $500 million.

Our next question comes from Wayne Cooperman with Cobalt Capital.

So just good timing. I was going to ask this question from before. Can you walk us through the increase in guidance presynergies? Is it coming from the Tronox side, the Cristal side, anything in particular you could point to, to increase the guidance?

Yes, it's Wayne, it's coming from both sides. Both companies are performing well from an operational standpoint, from a safety standpoint and benefiting from the tight market conditions. So it actually comes from both. No, we, obviously the situation is developing and we continue to want to provide insight on a conservative basis in terms of what we see the pro forma company would look like. And we think that $1 billion to $1.1 billion is exactly that, a conservative statement of what the pro forma company would look like.

And that includes whatever your expected remedies are to get the deal approved at this point?

Yes, it does.

Our next question comes from James Hayter with Rossport. Your line is open.

I just want to focus on the feedstock operation, if I may. Two questions. Firstly, did I hear you correctly in saying that all the excess inventory you had, particularly of ilmenite, has been worked through. And has that been worked through as in turned into titanium slags for sale? Or has it been turned into titanium slag and sold? Jean-François Turgeon: James, it's JF here. Look, maybe I did not express myself clearly. But we with the Jazan smelter, one of the synergy that we see is obviously to use the excess ilmenite that we have in our South African operation. And I know that in the past, Tom has talked about the huge pile of ilmenite that we have sitting on the ground in South Africa. Well, that ilmenite is still there and still sitting on the ground. So I mean, that's why we were very pleased with the announcement of this Option Agreement this morning because it will facilitate the synergy that will deliver out of the deal.

Yes. That stock haul that's there is carried at 0 value. So obviously, it's very profitable when we're able to actually process that.

That's great, guys. I'm pleased that I asked. The second question relates to a question earlier in regards to the split between what percentage of feedstock is sold externally and what percentage is consumed internally? I know there are competitive reasons why you can't give us an exact number. But if I look at the TiO2, the feedstock operations can produce around 700 to 750 a year and internally, you can produce around 465. I know they're different types. But are they sort of broad brush numbers that I can work with? And does that get me towards sort of a rough number or am I just way out if I use those numbers?

Typically, we don't, again, disclose exactly how much that we're selling on the open market. The majority of what we do sell is in fact CP slag. We also sell some natural rutile. But generically, it's -- I guess, I'm just reluctant to give the exact number.

Yes. No, we've disclosed that the merchant side of the CP slag sales are under a longer-term contract. So we're not playing in the merchant market per se. I think it's also fair to -- I'm sorry, yes, I was going to also say I think it's also fair to presume that given the tight market conditions in pigment and the need to make every ounce you can, and the resultant demand for feedstock is that we're increasingly using our natural rutile in-house, rather than selling it down into the downstream markets.

And as we close the transaction, the feedstock that we are externally selling will be internalized.

[Operator Instructions] I show no further questions in queue. So I'd like to turn it back over to Mr. Quinn for closing remarks.

Thank you, James. Again, I want to thank each of you for being with us this morning and for your time. Thank you for your continued interest in, and support of, Tronox. We look forward in the weeks to come for sharing additional updates with you about the progress we're making towards creating the world's leading global TiO2 producers. So thank you very much. Have a good day.

Thank you. Ladies and gentlemen, that does conclude today's conference. Thank you very much for your participation. You may all disconnect. Have a wonderful day.